In advance of the decision on the three mobile networks in Israel, Minister of Communications Gilad Erdan and Antitrust Commissioner David Gilo spoke by phone before the Passover holiday, and it appears that the direction is clear: the Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR)-HOT Mobile Ltd. deal will be approved, with severe restrictions, and the Pelephone Communications Ltd.-Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL)-Golan Telecom deal will be rejected, as previously reported in “Globes.”
On the basis of information received by “Globes,” it seems that the Antitrust Authority does not oppose a network-sharing agreement between Golan Telecom and Cellcom or Pelephone, but under no circumstances will it approve collaboration between Pelephone and Cellcom. The partnership between Hot Mobile and Partner will allow for cooperation between Golan Telecom and Cellcom or Pelephone for 3G services as well, which raises the question of how the two new players will escape the obligation imposed by the tender to establish a network with full coverage.
The ball is in the Ministry of Communications and the Ministry of Finance’s court - they will need to find legal solutions for this, as there are two distinct issues: establishing a joint 4G network, which will be approved with restrictions in the case of Partner and Hot Mobile, and establishing a 3G network, where, according to agreements between the new players and the major carriers, Golan and Hot Mobile will latch onto their networks and thus, apparently, meet their network coverage obligations.
Another meeting took place separately between Erdan, Ministry of Finance Director of Budgets Amir Levi, and the heads of Pelephone and Cellcom. As reported in “Globes,” Erdan posed some very difficult questions to his professional staff. It seemed at times that he was unwilling to accept their positions, and he demanded that they should hone their objections to two networks.
The ministry’s professional team and the Budgets Division supported three joint mobile networks all along, and opposed two networks, out of fear that it would reduce competition. Erdan, however, was careful not to take a clear stance, and to leave room for the discussion to continue. What has become clear is that Erdan was aiming to coordinate with the Antitrust Authority in order to avoid stalling the process by making a decision that goes against the Antitrust Authority’s position.
Because the Antitrust Authority can make decisions independently of the Ministry of Communications, there cannot be a situation in which the ministry makes a decision before the Antitrust Authority has its say. The ministry can add its own conditions to the decision on the network-sharing agreement, but it cannot go against the Antitrust Authority’s position. Because the Antitrust Authority will soon announce its position, it is expected that Erdan too will announce his policy soon. It will be possible to infer the reasons that the Antitrust Authority objects to a Pelephone-Cellcom-Golan Telecom agreement from the Antitrust Authority’s decision on the Partner-Hot Mobile agreement, and the restrictions it places on the agreement.
There is a theoretical chance that Pelephone or Cellcom will decide to appeal to the High Court of Justice if Golan does not join them to establish a shared network. There is a very significant difference between establishing a network shared by three or two carriers and an independently established network. It is a matter of tens of millions of shekels; hundreds of millions over time.
As of now, Pelephone is in a very vulnerable position, because Golan and Cellcom already have a domestic roaming agreement for 3G, so Pelephone could find itself in a situation in which it is forced to establish its network alone. This means that Pelephone could claim that it faces unequal terms versus the other players, and unfair competition.
Pelephone has hinted that, if this happens, it will consider appealing to the High Court of Justice, but it is too soon to conclude that it will go through with its threat, as Pelephone is a subsidiary of Bezeq, and its considerations are linked to the considerations of the others in the group. The company will therefore need to be careful about engaging in a legal battle with the Ministry of Communications.
Published by Globes [online], Israel business news - www.globes-online.com - on April 27, 2014